When the content consumer is king: Adapting to the media and marketing power shift With competition as fierce as ever, media companies and marketers must relentlessly engage consumers to win them and keep them. By Adam Bird, Ryan Durham, Sarah Holcomb, and Shamal Thakar May 2019 How can media companies and marketers: 1. 2. 3. 4. 5. Strengthen direct Identify and group Ensure that they invest Maintain relevance Adapt their teams, relationships with end consumers to engage in the right content, and engagement in mind-sets and consumers? them with curated content types, and the face of increasing processes to meet content? formats? global competition changing consumer and consolidation? preferences while defending their businesses from both traditional and new competitors? 2 Adapting to the media and marketing power shift The global media industry is grappling in favor of online content, and “cord- with constant disruption: well-funded nevers” who never become connectivity upstarts that support new formats and customers at all. In developing markets, experiences crowd more traditional broadband speeds facilitate exclusively media companies, which seek to mobile-media consumption that differentiate their own offerings from bypasses traditional media companies the increasing volume of content rolled and motivates providers to offer their out by a growing roster of competitors. content on mobile channels and in Predictably, competition for consumers’ mobile-friendly formats. One notable attention and spending remains example of this trend is Star India’s (now intense, with widespread connectivity owned by Disney), streaming video giving consumers access to new platform Hotstar, which uses low-cost content from an array of increasingly broadband access to reach hundreds global providers. of millions of consumers with a high- quality, mobile-first over-the-top (OTT) McKinsey’s Global Media Report video offering.1 indicates that, for all the turmoil in the industry, a core macrotrend remains In addition, more consumers than steady: traditional media continues ever before prefer to pay for access to fight for relevance as increasing to media over owning physical media, broadband penetration brings with especially in developed markets. it new formats and channels through Spending on streaming media, which which consumers can access content. includes one-time purchases as well With 11 percent compound annual as subscriptions, grew at a compound growth rate (CAGR) globally from rate of 33 percent per year during the 2012 to 2018, the steady growth in same period. The growth of on-demand broadband access and the availability media consumption in turn supports of attractive, cheap streaming video an environment that can facilitate both services have enabled a growing old and new brands’ connections to number of “cord-cutters” who cancel consumers (Exhibit 1). their traditional media subscriptions Exhibit 1 ’18–’22 The growth rates in the media industry vary by ’14–’18 region and subsector. Sector revenue CAGR by region <0% 0–4.9% 5–9.9% ≥10% Europe North America Asia–Pacific Latin America 3.3 4.7 2.1 7.3 Audio A few high-growth streaming companies have significantly 5.1 4.7 3.4 6.8 increased music revenues. Digital 7.4 10.2 10.5 15.2 Rapid growth of mobile and desktop consumption strengthens the advertising 11.8 19.9 18.6 27.2 sector’s long-term prospects. Over-the-top 16.1 16.7 14.6 16.1 Traditional media companies roll out their own offerings in response services 37.4 25.4 49.2 35.6 to customer adoption of large technology companies’ offerings. 2.6 -1.2 6.1 5.8 The majority of growth through 2022 will come from China Pay TV 3.6 0.3 9.1 6.7 and India. Out-of-home 2.4 2.5 3.7 5.7 Ad placement will shift away from billboards to street furniture and advertising 2.6 3.0 3.8 7.0 digital advertising in indoor locations. 4.8 3.0 5.0 4.2 Gate revenues, sponsorship, and media rights are event-driven; Sports 8.0 4.6 6.6 3.1 World Cup and Olympic years will support 2022 growth. 1.5 1.6 2.7 3.1 Growth in demand for OTT services puts pressure on traditional TV TV advertising 2.8 3.5 2.6 5.3 viewing and traditional TV advertising. 7.6 10.3 11.8 10.1 Continued success from hit franchise games and launch of new Video games 11.4 10.2 17.7 13.3 hardware platforms supports strong long-term growth. SOURCE: McKinsey Global Media Report 1 OTT providers distribute streaming media as a standalone product. Adapting to the media and marketing power shift 3 As media companies and brands seek profitable growth in an uncertain and changing landscape, the next stage for the industry will lie in an intense focus on direct-to-consumer engagement. It is the best way for media companies to sustain strong relationships with consumers, prevent competitors from diverting them, and win back the disengaged by tailoring offers to evolving preferences. Meanwhile, competitors have increased in kind Give consumers as well as number; social media and technology platform providers are daunting competitors for consumers’ what they want attention, in no small part because of their direct connection to their users. In such a competitive environment, In many ways, it’s an extraordinary time Companies must personalize their the most powerful tools for media to be a media consumer. More content approach to maintain that relevance companies and brands to build is available than ever before and and achieve scale and profitability. Vital and strengthen relationships with increasing at a breakneck pace: 300 considerations begin with providing consumers—and achieve sustainable hours of content is uploaded to YouTube content in formats and varieties that growth—will be every minute, and Netflix released more appeal to the evolving preferences — Distinctive content creation, than 1,000 hours of original content in of passionate fans—often the most sourced and created with a focus on 2018, up from 600 in 2016. Motivated profitable customers. Fan-centric strategic goals, to win and secure consumers in pursuit offerings include environments that of scale, both established and new nurture fan cultures and communities. — Curation of content and media companies continue to increase Media companies must also offer experiences to maximize consumer content output. In an environment platform-specific experiences to engagement, and of such plenty, choices can be as maximize the ease of use and likelihood — Using industry-wide consolidation overwhelming as they are satisfying of engagement. Finally, insight into as an opportunity to reset their (Exhibit 2). consumers’ willingness to pay for operating models. content will allow media companies to Against a backdrop of consumer-choice serve them to their desired level using a overload, it’s increasingly difficult to win range of monetization models. and hold their attention. Since the most effective way for media companies to grow is by reaching and delighting audiences, the central mission of media companies must be to place consumers at the center of all strategic decisions. And the best way to win—and maintain—consumer engagement does not necessarily lie in content quantity but in quality and relevance. 4 Adapting to the media and marketing power shift Exhibit 2 Consumers are inundated with content. Netflix Facebook Instagram Snapchat 2000 2018 Users engage with 1–2 Users engage with multiple mediums mediums at a time with simultaneously, with multiple access limited options options available (eg, mobile, TV) New content formats and types. Interactive storytelling Mobile-first content Short-form Netflix produces interactive content for viewers Hollywood and China invest $1 billion in Discovery agrees to create short-form videos to make decisions that guide plot WndrCo, Katzenberg’s mobile-first venture exclusively for Snapchat Virtual reality E-sports Live streaming Facebook launches new stand-alone virtual World’s first esports town built in SpaceX’s Falcon Heavy launch reached more reality headset, Oculus Go Hangzhou, China than 2.3 million concurrent views in 2018 SOURCES: 1. Brian Raftery, “Netfix ‘Black Mirror: Bandersnatch’ success means more choose-your-own-adventure fun ahead,” Fortune, March 12, 2019, http://fortune.com. 2. Carolyn Giardina, “Facebook launches Oculus Go VR headset,” Hollywood Reporter, May 1, 2018, https://www.hollywoodreporter.com. 3. Todd Spangler, "Jeffrey Katzenberg-led WndrCo's NewTV closes $1 billion funding; Disney, Fox, WB among investors," Variety, July 26, 2018, https://variety.com. 4. Adam Fitch, “Hangzhou opens its own esports town,” Esportsinsider, November 21, 2018, https://esportsinsider.com. 5. David Lieberman, “Discovery to boost its short form production in deal with Snapchat,” Deadline, February 16, 2017, https://deadline.com. 6. Micah Singleton, “SpaceX’s Falcon Heavy launch was YouTube’s second biggest live stream ever,” the Verge, February 6 2018, https://www.theverge.com. Adapting to the media and marketing power shift 5 A personalized approach also gives media companies and their brand partners opportunities to strengthen direct relationships with consumers. For example, Netflix frames each user’s experience as a product to improve. This focus on serving individual consumers helps maintain a high level of engagement and limits churn. More broadly, media companies can boost growth by identifying and serving consumers’ critical wants and needs. Because there is so much content to Support the choose from, many brands increasingly behave like content creators. When there is advertising, it should be consumer focus directly linked to and integrated with consumers’ media experiences and engagement. If the content consumer is With consumers’ experiences the For example, AMC complements the now king, then advertisers and brands key to media companies’ success, it Walking Dead franchise with The must become more relevant to that is clear that media companies must Walking Dead: Red Machete, a short- discerning target audience.